Barry Sternlicht’s Starwood Capital Group is attempting to get out ahead of a loan that could mean trouble in a couple of years.

Starwood is looking to modify a $577.3 million CMBS loan backed by 65 hotels across 21 states, Bisnow reported. The loan, originated in 2017, hit special servicing last month after the 6,300-key portfolio’s cash flow came under pressure.

Average occupancy was 67 percent as of the end of 2023, according to an S&P Global report, down from 73 percent the year prior. Net cash flow also slipped from $63.6 million in 2019 — the year before the pandemic hampered tourism — to $37.2 million.

A spokesperson for Starwood blamed the portfolio’s lagging performance on the “underperformance of West Coast tech markets as well as elevated expense growth across the overall select-service hotel sector.”

In 2017, the value of the portfolio was appraised at $956 million. It’s not even half of that today, according to S&P. The interest rate on the loan, meanwhile, is 4.5 percent.

The debt isn’t set to mature until June 2027. Starwood already has a term sheet in place for a loan modification that could close next month and a plan to offload properties in the portfolio, which include limited-service and extended-stay hotels run by Marriott International, Hilton Hotels & Resorts, InterContinental Hotels Group, Choice Hotels, Radisson Hotel Group and Larkspur Hotels & Restaurants.

“The reason we are looking to modify the loan, despite the maturity being in 2027, is because we would like to proactively sell/release certain assets in the pool that will improve the debt service coverage on the portfolio and allow better access to certain reserve accounts for value-add renovations,” a company spokesperson told Bisnow.

Starwood Property Trust subsidiary LNR Securities Holdings is handling the loan workout, according to Morningstar Credit.

— Holden Walter-Warner

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